CBN Injects $300m into Banks, Naira Strengthens (2024)

To stabilize the fluctuating naira-dollar exchange rate, the Central Bank of Nigeria (CBN) has disbursed over $300 million to Deposit Money Banks within the past fortnight. This strategic move was revealed in an advisory memo from the Association of Corporate Treasurers of Nigeria, which was shared with its members and subsequently obtained by The PUNCH.

The memo highlighted the intense activities in the foreign exchange market, noting that the official market rate had soared to as high as N1850/$. It detailed the CBN’s efforts last week, selling over $200 million to banks at rates below N1,500/dollar, and continued this week with sales at approximately $1,450—the communication aimed to inform members about the prevailing market rates and assist in their financial decision-making.

An executive committee member of the ACTN, preferring to remain anonymous, confirmed the memo’s authenticity to The PUNCH, emphasizing its purpose to keep members informed amidst the naira’s significant depreciation.

The naira has faced severe devaluation in recent weeks, starting the year at N891/$ and experiencing a steep decline in both the official Nigeria Autonomous Foreign Exchange Market (NAFEM) and parallel markets. However, a notable appreciation was observed in the parallel market rates last Thursday and Friday, following a joint operation by the CBN and the Economic and Financial Crimes Commission (EFCC) targeting currency speculators in Abuja. This operation also led to an improvement in the official market rate.

By the close of Monday’s trading activities, the naira appreciated to 1,582/$ in the official market, marking a 0.75 per cent increase from the previous rate of N1,594 at NAFEM. Despite a slight depreciation in the black market to between N1,555/dollar and N1,560/dollar, the naira had rebounded from its lowest point of 1,900/dollar on Thursday to 1,500/dollar on Friday, thanks to the EFCC’s continued crackdown on black market operators in Abuja and Lagos.

Last week, over 250 Bureau de Change (BDC) operators were arrested in a significant operation at the famous Wuse Zone 4 market by EFCC operatives, leading to a deserted street when visited by correspondents on Monday. The CBN has since directed currency trades within the traders’ offices, adhering to regulatory guidelines.

In early February, the CBN took decisive steps to curb the naira’s decline, including revising operations for International Money Transfer Operators to inbound transfers with mandatory naira payouts. These measures, alongside directives to banks to process travel allowances electronically and efforts to raise $10 billion to boost foreign exchange market liquidity, reflect a comprehensive strategy to stabilize the naira and ensure economic stability.

Editorial

The Central Bank of Nigeria’s recent intervention in the foreign exchange market, injecting over $300 million into Deposit Money Banks, is a testament to the relentless efforts to stabilize the naira. This move, amidst the naira’s rapid depreciation backdrop, underscores the complexities of managing a nation’s currency in a volatile global economy.

We stand at a critical juncture where the interplay between monetary policies and market dynamics demands not just reactive measures but a forward-looking strategy encompassing fiscal discipline, economic diversification, and robust financial regulation. The collaboration between the CBN and the EFCC to address currency speculation is a bold step, yet it highlights the need for a more sustainable approach to currency stabilization.

As we navigate these turbulent times, fostering an environment that promotes transparency, efficiency, and resilience in the financial sector is crucial. The measures taken by the CBN, including the crackdown on illegal currency trading and the push towards electronic transactions, are commendable. However, these should be part of a broader, more comprehensive plan that addresses the underlying issues of foreign exchange scarcity, inflation, and economic uncertainty.

The path to a stable and prosperous economy is paved with challenges. Still, with concerted efforts, strategic planning, and the cooperation of all stakeholders, we can achieve a balance that benefits not just the financial markets but every Nigerian. Let this moment of crisis inspire a renewed commitment to economic reform and financial stability, ensuring that the naira’s strength reflects the nation’s economic potential.

Did You Know?

• The Central Bank of Nigeria was established in 1958 and began operations on July 1, 1959, playing a crucial role in managing the country’s currency and monetary policy.
• Nigeria operates a managed float exchange rate system, where market forces determine the value of the naira with occasional interventions by the CBN.
• The Economic and Financial Crimes Commission (EFCC) was established in 2003 to combat financial and economic crimes, including currency speculation.
• The foreign exchange market in Nigeria comprises the official market (NAFEM), the parallel market (black market), and the Bureau de Change operators.
• The Nigerian economy is heavily reliant on oil exports, making it susceptible to global oil price fluctuations and impacting the foreign exchange rate of the naira.